Managerial style in cost asymmetry and shareholder value

The purpose of this study is to investigate the effect of managerial style on the stickiness of sales, general and administrative costs (SG&A), and also its effect on shareholder value.

The evidence indicates the influence of management style on the behavior of costs. Therefore, we expect that part of the stickiness of SG&A costs at the company level comes from the difference in the unconventional management style of the CEO. In this regard, the first hypothesis is stated "the fixed effects of the CEO have a significant relationship with the stickiness of the excess costs of SG&A at the company level". Economic and macro variables specific to the company determine the specific level of stickiness of SG&A costs. In this case, we assume that the fixed effects of the CEO indicate deviation from this specific level of the company, which is defined as the cost stickiness of SG&A related to the CEO. Standard agency models show that senior managers can impose their own style on a company, especially if they have sufficient decision-making power in the company. Considering this case (CEO effect) in SG&A cost stickiness, managers may have an optimal cost management strategy of SG&A costs due to personal ideals in entrenchment, bounded rationality or cognitive limitation. , which can lead to adhesion or anti-adhesion of excess costs. The excess cost of anti-adhesion administrative and sales costs related to the CEO may be caused by the CEO's short-sightedness, in which case the long-term values of the shares will be jeopardized. However, if capital markets also focus on current income and thus short-term profits, manager myopia can maximize current shareholder value. In this case, there will be a neutral or even positive relationship between the anti-stickiness of excess SG&A costs related to the CEO and the current market valuation. On the contrary, managers avoid negative feelings associated with firing employees or closing production sites. Because the costs imposed on the CEO are very high compared to the potential savings resulting from the reduction of costs (resources). In this case, considering that even if the capital markets mainly focus on the short-term, not reducing the resources (expenses) leads to the reduction of the current income of each share. Therefore, it is expected that the excess SG&A cost stickiness caused by the CEO has a negative relationship with shareholder value. In addition, managers have special motivations that act in their own interest regardless of the company's shareholders. Therefore, we expect that CEO-related excess stickiness is, on average, detrimental to shareholder value, regardless of the direction of the deviation. In addition, the management of the company can pursue further reductions (saving available resources for operational costs) depending on the budget strategy they follow. However, the CEO's cost adjustment decisions can also result from supervisory and supervisory duties, but it is expected that, on average, the effects described by the agency theory will prevail. Therefore, the second hypothesis states: "The level of excess SG&A cost related to the CEO has a negative relationship with shareholder value".

In the present study, the relationship between excess SG&A cost resulting from the decisions of CEOs with the value of equity was investigated. Based on agency theory and neoclassical theory, CEOs were expected to be significantly effective at the level of cost stickiness due to their unique management style. Therefore, the research hypotheses were formulated based on identifying the CEO's constant effects on cost-effectiveness of administrative and sales expenses and the negative relationship between excess stickiness related to the CEO and shareholder value and tested based on 1395 year-firm information from Tehran Stock Exchange during the period 2010 to 2020 was analyzed using multiple regression analysis based on composite data.

The results show that CEOs have a significant role in SG&A cost stickiness and managerial style has a positive relationship between cost stickiness and shareholder value.

This study develops the literature related to cost stickiness from two aspects. First, in this research, one of the important factors of asymmetric cost behavior has been identified and the findings of Chen et al. (2012) have been completed. Chen et al. (2012) are the first to propose the phenomenon of cost stickiness from the agent's point of view. In this research, by documenting the impact that individual CEOs' decisions have on the cost stickiness of SG&A costs, another proof of systematic difference in behavior The decision making of senior managers is presented. Second, by examining the relationship between cost stickiness and shareholder value, the current research provides conflicting evidence of the possible consequences of asymmetric cost behavior. Therefore, it suggests an interesting link between management accounting and financial literature. The results of the study showed that the excess level of SG&A cost stickiness caused by the decisions of individual CEOs is related to higher shareholder value. This result shows that if the CEOs have the necessary power in the company, they may act in the interest of the shareholders and increase the value of the company.

Although the experimental models of the research are developed based on the existing theories; But building a model that controls all economic determinants is challenging. Also, the variables measurement proxies may not be complete. Nevertheless, the findings of the research provide evidence of the authority of the senior manager in cost management. In addition, in this research, it is designed based on the proposal of Banker and Bizalou (2014) and helps to develop an experimental model to detect bad or good cost stickiness.